This blog is designed to record the investment journey of a UK based small investor. I hope to make a modest contribution to the collective wealth of investing knowledge made freely available to ordinary people. I am the author of four books [see sidebar and books tab]

Wednesday, 7 March 2018

Tritax Big Box - Full Year Results

This commercial property REIT was added to my income portfolio
in October 2016 following a placing of shares at 132p.

Tritax Big Box is the only Real Estate
Investment Trust dedicated to investing in and funding the pre-let development
of very large logistics facilities in the UK. The company believes these
properties, known as Big Boxes, are one of the most exciting and highest-performing
asset classes in the UK real estate market.

Big Boxes offer tenants economies of scale and
cost savings not available from smaller, older buildings. They are also crucial
to the efficient and effective operation of retailers, and in particular the
fulfilment of e-commerce orders. Because the nature of what the companies use
these buildings for is so fundamental to their very existence, Tritax is
unlikely to suffer from unexpected vacancies.

BBox have sought to distinguish themselves
through the quality of location and modernity of their real estate assets let
to high calibre tenants, which provide long term income and attractive
prospects for growth.

The group hold a portfolio of distribution
assets which are located close to motorways and are let to tenants including
some of the leading supermarkets - Sainsbury, Tesco, Morrisons as well as
M&S and Next. Some other tenants include:

Amazon - the world’s largest electronic and e-commerce
retailer

Argos - the UK’s leading multi-channel retailer,
offering more than 33,000 products both on-line and in-store.

Brake Bros - the number one food service
distribution company in the UK

Ocado - the world’s largest dedicated
online grocery retailer.

Wolseley - the world’s number one distributor of
heating and plumbing products

The UK has been one of the fastest global
adopters of online retail and continues to exhibit significant growth in the
sector, driving new demand for logistics real estate including Big Box assets.
Successful large-scale retailers (online and conventional) and logistics
providers are increasingly relying on the Big Box asset and demand is evident
from companies up-scaling to such facilities.

Results

Tritax Big Box was first listed at the end of
2013 at an initial floatation price of 100p. During 2016 it raised £550m of
equity through two substantially oversubscribed share issues. In May it raised
a further £350m which was invested over the rest of 2017 and brings the market
cap to £2bn.

They have today issued results
for the 12 months to end
December 2017 (pdf via website). Total Shareholder return for the period
was 15.2%. The company target a total return (being the increase in
EPRA NAV + dividends paid) of 9.0% per year - the figure for 2016 was 9.6%.

Profits came in at £247m (2016 £92m) and total portfolio assets are valued at £2.6bn across 46 assets (2016 £1.9bn across 35 assets).

Income

Building on payouts for the previous three years
of 4.15p in 2014 and 6.0p in 2015 and then 6.2p, the declared dividend for the
full year 2017 is 6.40p rising to 6.70p in the coming year. At the current
share price this provides a fwd yield of ~4.7%.

The company have now moved to quarterly dividend
payments. The Group's dividends are not quite covered by adjusted earnings of
6.37p, which are underpinned by strong rental stream and low cost base.

Commenting on the results, chairman Richard
Jewson said:

“We have a sector-leading portfolio of UK Big Box
assets that are benefiting from structural change driven by increasing
e-commerce penetration, and the operational and financial benefits which they
can provide to our Customers. The fundamentals of our market remain positive
and are largely unaffected by current geopolitical and economic uncertainties.
Despite the uncertainties it brings, Brexit may provide a silver lining, since
with increased border controls our Customers will require more warehousing
domestically, further supporting our business case".

Summary

I like what I have seen so far and I believe the
model offered by Big Box which is basically tapping into a part of the online
revolution, has potential for growth as well as a fairly secure dividend
underpinned by the long leases and upward-only rent reviews. The share price
has gained 8% compared to my purchase price of 132p. In addition, I have
received a dividend of 6.4p and the prospect of an additional 4.7% increase to 6.7p
for the coming year.

The way we shop has changed quite significantly
over the past decade and internet sales are forecast to account for over 20% of
total sales by 2020. To remain competitive in this environment, retailers need
to have large, highly efficient distribution facilities that can fulfil orders
quickly and accurately. This need is only becoming more acute as customers
demand ever-shorter delivery times.

The demand for the BIG boxes offered by this
REIT is likely to remain strong which means the dividend is reasonably secure
and should easily keep pace with inflation.

This article is a record of my personal
investment thoughts/decisions and is not a recommendation - as always, please
DYOR.

2 comments:

Thanks for the update, DIY. I bought BBOX after you drew my attention to it and I'm happy to keep it in my portfolio and to top up when the price is right. As you say, thhe way we shop has already changed so much and I do believe these warehouses are the way to go.